In the brief few months following legalization when the Canadian market experienced a severe cannabis shortage, some licensed producers adopted a strategy of “channel stuffing,” or shipping any finished product they had on hand to wholesalers, in the hope that they would accumulate market share. That strategy, to some extent, backfired, as an increased variety of products came to market and consumer preferences became more evident.

Bank of Montreal analyst Tamy Chen pointed out in a recent note evaluating Aurora’s earnings that the company’s declining recreational market share was in fact due to elevated “channel filling” in prior periods that was still being worked through at the retail level.

This same cycle might play itself out again as cannabis edibles, beverages and vape pens hit the adult-use market by end of this year, cautions Chris Damas, a long-time cannabis analyst at author of The BCMI Report.

“Look, it is up to them whether they are going to be cautious or bold in terms of how they play this. I just expect the same kind of spin cycle of how cannabis 2.0 is going to be the saving grace of the industry right now, the same thing we saw in the lead up to legalization last year,” he said.

But from the point of view of licensed producers who have been struggling with weak revenues, the problem is not as much a lack of understanding consumer preferences, as a lack of retail stores in Ontario that is creating a bottleneck in the supply chain.

“We want to see the retail footprint increase. I will give it a little bit more time, but just a bit. Producers have made it clear that we want to see more stores in Ontario,” Battley said.

In an interview with the Post on Thursday, Canopy CEO Mark Zekulin called on the Ontario government to immediately open up more retail stores.

“The fact of the matter is there are not enough stores, and enough supply. The Ontario government has made it clear their desire to have more stores, but why wait three months? Fix it now,” he said.

Damas vehemently disagrees with the notion that simply increasing the number of stores will alleviate the financial troubles many large licensed producers have been grappling with over the past few months. “Even if Ontario had those 1,000 stores which I think they will eventually, business is so overbuilt in terms of annual capacity of dried cannabis and soon, extracted oil, that it won’t solve the underlying problem,” he said.

Evidence of the over-capacity problem is already playing itself out amongst some licensed producers. Quebec’s HEXO Corp. recently suspended operations of its Niagara greenhouse, and cut production in 200,000-square-feet of its main greenhouse in Gatineau. Aurora too announced Thursday that it would suspend completion of a 1.6 million-square-foot growing facility in Medicine Hat, Alberta “for the foreseeable future.”

But Battley characterizes the move as “hitting the pause button to ensure we are delivering production to meet demand.”

“I wouldn’t say we over-expanded too quickly,” he said, dismissing the possibility of job losses due to a downsizing of operations.

“It will always be an advantage to be the world’s largest producer of quality cannabis.”